Regulatory: Doing business overseas— the accidental exporter

Did you know that giving a Chinese national a tour of a biotech laboratory in the U.S. may be viewed by the U.S. government as the equivalent to exporting biotechnology to China? If this comes as a surprise to you, count yourself in the majority of people who are generally unaware of the “deemed export” rule. Pursuant to the rule, the disclosure of controlled technology to a foreign national in the U.S. without appropriate export licenses can lead to large fines and criminal liability—even if no products are ever shipped out of the country.

Want to learn more? Here are five points to keep in mind regarding deemed exports:

The deemed export rule may be counterintuitive.

Even to experienced practitioners, the deemed export rule requires careful analysis when deciding how it applies to a particular individual or technology. Accordingly, you should refrain from relying on a common sense understanding of how the rule applies in a given situation. The release of technology to a foreign national should be reviewed on a case-by-case basis.

The first step in analyzing the application of the rule is to determine the status of the person to whom the technology will be disclosed. The rule does not apply to U.S. citizens, green card holders, refugees or other protected individuals. Issues of nationality and residence can quickly complicate the analysis. For instance, consider a factory tour given to a businessperson visiting from Germany. If the individual is a resident of Germany, but a citizen of Iran, or perhaps holds dual German and Iranian citizenship, the application of the rule is less straightforward.

The second step is to determine whether a license is required to export the technology directly to the foreign national’s home country. If so, a license may be required before disclosing the technology to the person here in the U.S. The application of the export licensing rules can be complex and sometimes unexpected, as both the product and the destination country must be considered. A widget may require a license if sent to one country, but not if sent to another country.

Intangibles—such as technology and source code—are subject to restrictions under U.S. export law and need not leave the country for an export to occur.

Exporting technology in the form of information or data can be just as problematic as exporting widgets. Under U.S. export law, technology is broadly defined, and includes information necessary for the development, production or use of a product. If you know or intend that a technology will be transmitted abroad, releasing that technology could be considered an export. The disclosure of technology abroad may catch a company, whose employees travel for business, off guard. Business people and researchers often do not consider that taking a laptop on a business trip could be considered an export of items on that laptop to their destination country.

That said, nothing has to leave the U.S. for an export to occur. The deemed export rule states that a release of technology or source code to a foreign national in the U.S is an export to that individual’s home country. Technology is considered released for export as soon as the foreign national has seen or heard the information.

Your employees may be subject to the deemed export rule.

A company may need an export license to provide information to its employees in the United States. To the surprise of many businesses, even foreign nationals who are legally in the United States (often under long-term professional visas) may be subject to the deemed export rule.

While a license will not be required for most foreign nationals if they do not have access to controlled technology or source code, employers should review the job duties of their employees to make sure a license is not required. In fact, since February 2011, the U.S. Citizenship and Immigration Services Form I-129 requires companies petitioning for certain nonimmigrant visas for foreign workers to certify that they have—or do not need—an export license for their technologies.

Fines and penalties for unapproved deemed exports can be harsh, and government enforcement is on the rise.

Deemed export violations are no small matter. Although this has not always been the case, the U.S. government has aggressively enforced violations in recent years. The potential penalties for a deemed export violation are severe.

Consider J. Reece Roth, an electrical engineering professor from Tennessee who worked as a consultant on a military research project. Roth shared technological information about the project with graduate students in Tennessee who happened to be Chinese and Iranian nationals. Roth also brought his laptop—containing information about the project—with him to China when he traveled there to lecture about his work. These facts were the basis for felony convictions and a prison sentence upheld last year by a federal appellate court.

Education and internal controls can help your company successfully navigate the deemed export rule.

Despite its complexities, companies can avoid the pitfalls of the deemed export rule by educating their employees about the application of the rule and implementing (or strengthening) internal controls. For example, when visitors come to the company, how does the company control what they see and hear? What measures exist to limit access to technical data by the company’s employees? Through relatively straightforward procedures, a company can successfully navigate the deemed export rule.

Andrew Turner, a former Godfrey & Kahn, S.C. attorney, also contributed to this article.